1. Purchases in Year 1 are $480,000.

2. In Year 2, management expects 15% sales growth and a 10% increase in all expenses except for depreciation, which increases by 5%.

3. Management expects an inventory turnover ratio of 5.5 for Year 2.

4. A receivable collection period of 90 days, based on year-end accounts receivable, is planned for Year 2.

5. Year 2 income taxes, at the same rate of pretax income for Year 1, will be paid in cash.

6. Notes payable at the end of Year 2 will be $30,000.

7. Long-term debt of $25,000 will be paid in Year 2.

8. FAX desires a minimum cash balance of $20,000 in Year 2.

9. The ratio of accounts payable to purchases for Year 2 is the same as in Year 1.

10. All selling and administrative expenses will be paid in cash in Year 2.

11. Marketable securities and equity accounts at the end of Year 2 are the same as in Year 1.

Required:

CASE 10-1 Preparing and Interpreting Cash Flow Forecasts Fax Corporation's income statement and balance sheet for the year ended December 31, Year 1, are reproduced below: Additional Information: 1. Purchases in Year 1 are $480,000. 2. In Year 2, management expects 15% sales growth and a 10% increase in all expenses except for depreciation, which increases by 5%. 3. Management expects an inventory turnover ratio of 5.5 for Year 2. 4. A receivable collection period of 90 days, based on year-end accounts receivable, is planned for Year 2. 5. Year 2 income taxes, at the same rate of pretax income for Year 1, will be paid in cash. 6. Notes payable at the end of Year 2 will be $30,000. 7. Long-term debt of $25,000 will be paid in Year 2. 8. FAX desires a minimum cash balance of $20,000 in Year 2. 9. The ratio of accounts payable to purchases for Year 2 is the same as in Year 1. 10. All selling and administrative expenses will be paid in cash in Year 2. 11. Marketable securities and equity accounts at the end of Year 2 are the same as in Year 1. Required: a. Prepare a statement of forecasted cash inflows and outflows (what-if analysis) for the year ended December 31, Year 2. b. Will FAX Corporation have to borrow money in Year 2? CHECK Forecast cash needed, $55,920